Ed McKnight: Is buying at the bottom of the market the best move?

Buying shares at the bottom of the market isn’t all it's cracked up to be. Instead, Ed McKnight offers a few ideas on what to do instead. 

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Episode Transcript

Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack Team podcast
from newstalk z'b quarter.

Speaker 2 (00:13):
To eleven on News talkszb Ed mcnight from Obi's Partners
is here with us this morning. We're talking money ed
and an alternative to trying to time the market, because
buying at the bottom of the market is all well
and good in principle, but of course timing the market
is nigh impossible. Then you've got a better option dollar
cost averaging. So yeah, why is this better than trying

(00:33):
to time the market? Do you reckon?

Speaker 3 (00:35):
Well, I suppose us keyws have this obsession about trying
to invest at the absolute lowest point in the market.
And I think implicit in that is this idea that
buying at the bottom of the market gives you the
lowest price. But that's not always true. And I remember
reading an example from a great book, Girls That invest
Who was written by a friend of mine's some Curve,

(00:57):
and she gave us awesome example about, well, what if
you started forty years ago and you put two hundred
dollars a month into investments, But you Jack in this case,
you're a market timing genius and you're able to perfectly
predict the bottom of the market. So you start forty
years ago, you put your two hundred dollars a week away,
and you save it. You save it the next month

(01:19):
as well, you save it the next month as well,
and as soon as the market crashes, your piling your money,
and you keep doing this for forty years. Well, after
forty years you would have made about nine hundred and
fifty grand, which is a great, great nest egg. You'd
be very happy with that over forty years. Shows you
the power of compounding interest. But Leeds say, in said
forty years ago, you said, okay, I've got my two
hundred dollars a month, but I'm just going to put

(01:41):
it into investments and shares, and I'm not going to
care whether the markets aren't, the markets down, I'm just
going to do it. Well blow me down. You forty
years later would have just under one point four million
dollars in the bank. And I thought, this is fascinating.
So why does this happen? Well, it's because share markets
and all asset markets tend to increase in value over time.

(02:04):
And so I'll give you an example that I'm not
that a little bit clearer. The bottom of the market
for the S and P five hundred, they had a
bit of a dip September twenty twenty two, there was
a bottom of the market. But if you invested into
an index tracking fund at any time before March twenty
twenty one, you would have had a cheaper price. Right,
I'll give you another example market bottom down S and

(02:27):
P five hundred again, March twenty twenty COVID lockdowns. But
if you'd invested in an index tracking fund any time
before September twenty seventeen, you would have got in at
a cheaper price. And so what sometimes people think markets
do is they start at ten dollars, they go to
twenty dollars, they go to ten dollars, they go to
twenty dollars. But that's not how it works. All types

(02:49):
of assets tend to increase in value over time, and
so often the earlier you get in, the cheaper price
you'll get, and often lower than the bottom of the market.
I've got one more example for you, just in terms
of property prices as well. So again I work with them,
is a lot they all want to buy at the
bottom of the market. Well, the bottom of the market

(03:10):
in Auckland was twenty twenty four. But again, if you
had purchased an investment property or any sort of property
at any time before September twenty twenty, you would have
bought at the lower price. December two thousand and eight,
there was a crash again because of the GFC, but
if you had bought it any time before January two
thousand and six, you would have got in again at

(03:31):
a lower price. And so I just want to challenge
Kiwis to think, Hey, it's not always about trying to
time the market perfectly, because you probably can't do that anyway,
But it's about continuously investing through the ups and through
the downs, and often you'll come out better than just
even if you were able to time that market perfectly.

Speaker 4 (03:52):
Think it's sort of you have to sort of almost
break with a kind of intuition, you know what I mean, Like, Yeah,
you have to, like it's a classic like using logic
and rational thinking to kind of, yeah, to override what
your natural impulses might be.

Speaker 3 (04:09):
I think it's just about resetting our expectations around. Well, yes,
we do want to get the lowest price possible so
we can make them both the best gains possible. But
it's just well, what's going to do that for us?
Is it going to be trying to time the market
perfectly or is it realizing we can't do that and
actually the better returns come in by getting into the
market sooner. And I think we all do this anyway

(04:30):
with our Kiwi savers. Yeah, even if there's a market crash,
it's not like we all go and say, right, let
me raise my contributions now I want to put more
into Kiwi Saver. We just keep doing our three percent
to our four percent every single week, month, fortnite. However,
often we get paid and one day you open up
your bank cap and you're really surprised at actually whether
the market was up or whether the market was down.

(04:52):
I actually did okay out of this.

Speaker 4 (04:54):
Yeah.

Speaker 2 (04:54):
It also means you can kind of save yourself the
anxiety that comes with the volatility, especially with the stock
market like it is right now, right up and down
and up and down, and the president who can tweet
out something and things change in a moment. You know,
you can save yourself all of that anxiety by just
trying to form a habit. We're by you dollar cost
average over time, thank you so much. Those are fascinating examples,

(05:16):
and we really appreciate it. That's evening night from Obi's
Partners with Us This Morning.

Speaker 1 (05:20):
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